Mfund analysis @ angel

CHAPTER-I

INTRODUCTION

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INTRODUCTION TO MUTUAL FUNDS

A mutual fund is nothing more than a collection of stocks and/or bonds. We can think

of a mutual fund as a company that brings together a group of people and invests their

money in stocks, bonds, and other securities. Each investor owns shares, which

represent a portion of the holdings of the fund.

OBJECTIVES OF THE STUDY

• In-depth study to analyze the effect of financial crisis on Mutual Fund

Company and studying the impact on selective debt vis-à-vis equity mutual

funds.

• To study the changes in the portfolio in the recent one year.

• To Study the various factors that affect the performance of equity and debt

schemes.

• To get the knowledge on the evaluation parameters, on the basis of which the

analysis and comparison of various equity schemes is done.( NAV, AUM,

Expense ratio, Portfolio turnover, Standard deviation, Sharpe ratio, Beta, Alfa,

R-Squared, P/E Ratio and P/B Ratio)

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SCOPE OF THE PROJECT

To study the performance of the mutual fund schemes in the scenario of global

financial crisis, total of 16 schemes belonging to three different companies (Birla Sun

Life Mutual fund, ICICI Prudential Mutual Fund, Reliance Mutual fund) have been

selected. The performance of all the schemes is studied by taking the NAV(Net Asset

Value) and AUM (Assets Under Management) of the schemes from the month of

January 2008 (sensex reached 21000 points) to till date. Along with the risk and

volatility measures of the fund (Beta, Sharpe ratio, Standard deviation, portfolio

turnover ratio) are studied to justify the performance of the fund. The success of any

particular scheme is determined by the ability to generate the returns, so the returns

generated by the schemes in each month are studied by plotting graphs to know the

performance of the scheme.

LIMITATIONS

1. Unavailability of the data : This project study analyses the performance of the

mutual fund schemes form the beginning of the last year, so there is a

necessity of the historic data. The unavailability of the historic data is the big

limitation to the project study

2. Primary survey : some conclusions of the study are drawn based on the results

of the primary survey which always have the limitations of personal bias.

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METHODOLOGY

Data collection Primary source:

The questionnaire for collecting the primary data has been prepared. Two

questionnaires have been prepared. One questionnaire will be given to general public,

contains the questions that are used to get the data related to the perception of mutual

funds by the people, and what are the requisites of the people for the investment

options, these results are used for giving some recommendations to the company. The

other questionnaire will be given to the employees of the Birla Sun Life mutual fund,

ICICI prudential mutual fund and reliance mutual fund to know the performance of

the respective mutual funds.

Secondary source:

The process of data collection from secondary sources is done by collecting the data

related to mutual funds from the websites www.amfiindia.com,

www.mutualfundsindia.com, www.myiris.com, www.valueresearchonline.com, in

these websites update information regarding every mutual fund scheme is present, all

the necessary information for my project is taken from them. I have studied about the

financial crisis 2008 from Wikipedia and also articles in newspaper in business

standard, Times of India, Economic Times. The data for analyzing the performance of

mutual fund schemes is collected from website www.birlasunlife.com, for the

comparison purpose of Birla schemes with other mutual funds I have referred

www.reliancemutual.com, and www.icicipruamc.com, and took the data of the similar

schemes that need to be compared.

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DATA COMPILATION AND DATA ANALYSIS

The data collected from the secondary sources is refined carefully and the necessary

information for the project is taken. The analysis part of the secondary data that has

been collected and implemented is analyzed using linear graphs and bar graphs,

showing the changes in each month in the NAV, AUM, Standard deviation, Sharpe

Ratio, Portfolio Turnover, for each and every fund of Birla Mutual Fund. And after

that the comparative study of Birla Mutual Fund will be done with the ICICI

Prudential Mutual Fund and Reliance Mutual Fund. The primary data is collected as

to support to the secondary data collection. After collecting the responses from the

employees and the customers they are to be fed in to the Microsoft Excel and bar

graphs are drawn to show the response of the people.The data of both primary source

and secondary source is compiled to study further.

DATA IMPLEMENTATION

The data related to the mutual fund schemes that is collected from the secondary

sources has been compiled and interpreted in the form of tables, all these tables are

shown below. In the same way the results of primary sources obtained from Microsoft

Excel will be kept in the form of graphs/ pie charts/ tables, which is apt for the study

to make the data look appealing and easy to study.

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CHAPTER-II

LITERATURE REVIEW

LITERATURE REVIEW

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Mutual funds

A mutual fund is nothing more than a collection of stocks and/or bonds. We can

think of a mutual fund as a company that brings together a group of people and

invests their money in stocks, bonds, and other securities. Each investor owns

shares, which represent a portion of the holdings of the fund.

Mutual funds will give returns in three ways:

1) Income is earned from dividends on stocks and interest on bonds. A fund pays

out nearly all of the income it receives over the year to fund owners in the

form of a distribution.

2) 2) If the fund sells securities that have increased in price, the fund has a capital

gain. Most funds also pass on these gains to investors in a distribution.

3) If fund holdings increase in price but are not sold by the fund manager, the fund's

shares increase in price. You can then sell your mutual fund shares for a profit.

Working of a mutual fund A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned

through these investments and the capital appreciation realized are shared by its unit

holders in proportion to the number of units owned by them. Thus a Mutual Fund is

the most suitable investment for the common man as it offers an opportunity to invest

in a diversified, professionally managed basket of securities at a relatively low cost.

The flow chart below describes broadly the working of a mutual fund:

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Organizational structure of a mutual fund

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset

management company (AMC) and custodian. The trust is established by a sponsor

or more than one sponsor who is like promoter of a company. The trustees of the

mutual fund hold its property for the benefit of the unitholders. Asset Management

Company (AMC) approved by SEBI manages the funds by making investments in

various types of securities. Custodian, who is registered with SEBI, holds the

securities of various schemes of the fund in its custody. The trustees are vested with

the general power of superintendence and direction over AMC. They monitor the

performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company

or board of trustees must be independent i.e. they should not be associated with the

sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds

are required to be registered with SEBI before they launch any scheme. However,

Unit Trust of India (UTI) is not registered with SEBI (as on January 15, 2002).

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

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Classification of mutual fund schemes

Mutual fund offer the services by offering different schemes, people can choose

different types of schemes depending on the requirement of the people.

Mutual funds have three types of classification

1. Based on investment objective

2. Based on investment style

3. On the basis of flexibility

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Broad classification of mutual funds

Based on their structure:

Open-ended funds: Investors can buy and sell the units from the fund, at

any point of time.

Close-ended funds: These funds raise money from investors only once.

Therefore, after the offer period, fresh investments can not be made into

the fund. If the fund is listed on a stocks exchange the units can be traded

like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the

New Fund Offers of close-ended funds provided liquidity window on a

periodic basis such as monthly or weekly. Redemption of units can be

made during specified intervals. Therefore, such funds have relatively low

liquidity.

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Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With

fluctuating share prices, such funds show volatile performance, even losses. However,

short term fluctuations in the market, generally smoothens out in the long term,

thereby offering higher returns at relatively lower volatility. At the same time, such

funds can yield great capital appreciation as, historically, equities have outperformed

all asset classes in the long term. Hence, investment in equity funds should be

considered for a period of at least 3-5 years. It can be further classified as:

Index funds

Equity diversified funds

Dividend yield funds

Thematic funds.

Sector funds

ELSS.

Balanced fund: Their investment portfolio includes both debt and equity. As a result,

on the risk-return ladder, they fall between equity and debt funds. Balanced funds are

the ideal mutual funds vehicle for investors who prefer spreading their risk across

various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors

averse to idea of taking risk associated with equities. Therefore, they invest

exclusively in fixed-income instruments like bonds, debentures, Government of India

securities; and money market instruments such as certificates of deposit (CD),

commercial paper (CP) and call money. Put your money into any of these debt funds

depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion

being invested in call money market.

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Birla Sun Life Mutual Fund - BIRLA SUN LIFE GILT PLUS - LIQUID

Portfolio as at August 31, 2010

Issuer % to Net Assets Rating

Cash & Current Assets 100.00%

Total Net Assets 100.00%

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and

T-bills.

OBJECTIVE: An open ended government security scheme with the objective to generate

income and capital appreciation through investments exclusively in government securities.

LAUNCH: OCTOBER 12TH 1999.

TYPE OF INVESTMENT: SIP,SWP,STP.

Birla Sun Life Mutual Fund - BIRLA SUN LIFE GILT PLUS - PF PLAN



Government Bond 63.95%

08.13% CGL 21Sep22 51.71% Sovereign

08.26% GOVT.STOCK 2027 10.18% Sovereign

07.47% OIL MKT CO GOI BOND 2012 2.06% Sovereign



Birla Sun Life Mutual Fund - BIRLA SUN LIFE GILT PLUS - REGULAR PLAN



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Government Bond 64.70%

08.13% CGL 21Sep22 42.03% Sovereign

07.47% OIL MKT CO GOI BOND 2012 16.77% Sovereign

08.26% GOVT.STOCK 2027 5.91% Sovereign



iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which we have variable coupon date.

Birla Sun Life Mutual Fund - BIRLA SUN LIFE FLOATING RATE - LONG TERM



Money Market Instruments 96.68%

Punjab National Bank 16.57% PR1+

UCO Bank 12.80% P1+

Central Bank of India 12.69% PR1+

ICICI Bank Ltd. 11.46% A1+

Reliance Industries Ltd. 10.29% P1+

IDBI Bank Ltd. 9.19% A1+

Allahabad Bank 6.42% A1+

Andhra Bank 5.03% F1+

State Bank of Patiala 4.64% P1+

Kotak Mahindra Bank Ltd. 4.32% P1+

Andhra Bank 3.27% PR1+


Total Net Assets 100%

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iv)Gilt funds LT- They invest 100% of their portfolio in long-term government

securities.

v) Income funds LT- Typically, such funds invest a major portion of the portfolio in

long-term debt papers.

vi) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an

exposure of 10%-30% to equities.

MIP Objective : The primary objective of the scheme is to generate income so as to

make monthly distributions to unit holders with the secondary objecting being growth

of capital. Income may be generated to the receipt of coupon payment, the

amortization of the discount on debt instruments, receipts of dividends or the

purchase and sale of securities in the underlying portfolio. The schemes will under

normal market conditions, invest its net assets primarily in fixed income securities,

money market instruments, cash and cash equivalents while at the same time

maintaining a small exposure to equity markets. ( Monthly income is not assured and

is subject to availability of distributable surplus).

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Domestic Rate Markets….Short and Long

• We expect short term rates are expected to be strained higher amidst the

liquidity deficit in the system owing to the festive-season currency leakage.

Credit spreads (both intra-credit spreads and those relative to government

bond yields) for the 1-4 year tenor are expected to widen from current levels in

the coming months as credit demand picks up.

• We remain positive to neutral on long term rates going ahead in view of the

following factors:

• Inflation momentum as observed is distinctly trend lower; we expect

the price growth trajectory to be in line with the 6% RBI guidance by

Mar 2011

• The gross bond issuance of INR 1.63 tn is expected to find healthy

demand more so with the opening of the FII investment limits in both

corporate and government debt.

• Global treasuries are still trading strong amidst sustained investor

demand owing to periods of intermittent risk aversion in the developed

economies and lower supplies and expected currency appreciation in

the developing economies.

Sovereign yields currently trade above their long term averages and are therefore

expected to exhibit some mean reversion.

Portfolio Positioning & Investment Proposition

1. We are in favor of long duration funds that has been built chiefly through

investment in Government of India securities as we are negative on corporate bond

spreads currently hovering at 65-75bps for 10 yr maturity.

2. Investors with more than one year investment horizon should look at BSL Gsec-

Long term plan and Income funds, as active duration management should result in

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superior performance. We recommend longer investment horizon owing to increased

volatilities.

3. We have reduced the maturities in our money market funds to reduce volatility in

returns in times of hardening short term rates. There is a case to invest in medium

duration money market funds with average maturity of less than 180 days as daily

volatility in the funds are expected to be compensated with higher returns. Our short-

term, medium term funds and floater long funds are positioned to benefit from the

above strategy, favourable to investors with varying horizon preferences.

For the passive investor, we recommend the dynamic bond fund, which promises to

navigate through various stages of business and rate cycles by apt and swift

repositioning of its investment strategies. It is well suited for investors with one-year

investment horizon.

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Different Plans in Mutual Fund

Growth Plan and Dividend Plan

A growth plan is a plan under a scheme wherein the returns from investments are

reinvested and very few income distributions, if any, are made. The investor thus only

realizes capital appreciation

Source: Understanding Mutual funds- Sunita Abraham, Uma Shashikant

on the investment. This plan appeals to investors in the high income bracket. Under

the dividend plan, income is distributed from time to time. This plan is ideal to those

investors requiring regular income.

Dividend Reinvestment Plan

Dividend plans of schemes carry an additional option for reinvestment of income

distribution. This is referred to as the dividend reinvestment plan. Under this plan,

dividends declared by a fund are reinvested on behalf of the investor, thus increasing

the number of units held by the investors.

Automatic Investment Plan

Under the Automatic Investment Plan (AIP) also called Systematic Investment Plan

(SIP), the investor is given the option for investing in a specified frequency of months

in a specified scheme

Source: understanding Mutual Funds- sunita Abraham, Uma Shashikant

of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan

their savings through a structured regular monthly savings program.

Automatic Withdrawal Plan

Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan

(SWP), a facility is provided to the investor to withdraw a pre-determined amount

from his fund at a pre-determined interval.

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Performance of Mutual Fund Scheme Let us start the discussion of the performance of mutual funds in India from the day

the concept of mutual fund took birth in India. The year was 1963. For 30 years it

goaled without a single second player. Though the 1988 year saw some new mutual

fund companies, but UTI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer to

satisfactory level. People rarely understood, and of course investing was out of

question. But yes, some 24 million shareholders was accustomed with guaranteed

high returns by the begining of liberalization of the industry in 1992. This good record

of UTI became marketing tool for new entrants. The expectations of investors touched

the sky in profitability factor. However, people were miles away from the

preparedness of the risk factors after liberalization. Assets Under Management of UTI

was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of

mutual funds in India through figures. From Rs. 67bn. the Assets Under Management

rose to Rs. 470 bn. in March

1993 and the figure had a three times higher performance by April 2004. It rose as

high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined

when stock prices started falling in the year 1992. Those days, the market regulations

did not allow portfolio shifts into alternative investments. There were rather no choice

apart from holding the cash or to further continue investing in shares. One more thing

to be noted, since only closed-end funds were floated in the market, the investors

disinvested by selling at a loss in the secondary market . The performance of mutual

funds in India suffered qualitatively. The 1992 stock market scandal, the losses by

disinvestments and of course the lack of transparent rules in the where about rocked

confidence among the investors. Partly owing to a relatively weak stock market

performance, mutual funds have not yet recovered, with funds trading at an average

discount of 1020 percent of their net asset value.

The supervisory authority adopted a set of measures to create a transparent and

competitive environment in mutual funds. Some of them were like relaxing

investment restrictions into the market, introduction of open-ended funds, and paving

the gateway for mutual funds to launch pension schemes.

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The measure was taken to make mutual funds the key instrument for long-term

saving. The more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower risks

and higher profitability within a short span of time, more and more people will be

inclined to invest until and unless they are fully educated with the dos and dont’s of

mutual funds.

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Evaluation parameters of mutual fundsFollowing are the evaluation parameters on the basis of which the analysis and

comparison of various equity schemes is done.

Net Asset Value (NAV)

Assets under Management

Expense Ratio

Portfolio Turnover

Standard Deviation

These are the parameters that are used to study performance of mutual fund schemes

over a period of time, in my study I have used only some of them because of the data

availability constraints. Detailed explination of the parameters I have used are given

below

Net Asset Value (NAV)

The value of a collective investment fund based on the market price of securities held

in its portfolio. NAV per share is calculated by dividing net assets of the scheme

/number of Units outstanding.

Assets under Management

It is used to gauge how much money a fund is managing. Mutual Funds use this as a

measure of success and comparison against their competitors; in lieu of revenue or

total revenue they use total 'assets under management'.

The difference between two AUM balances consists of market performance

gains/(losses), foreign exchanges movements, net new assets (NNA) inflow/(outflow)

and structural effects of the company. Investors are mainly interested in the NNA,

which indicate how much money from clients had been newly invested. Furthermore,

it's common to calculate the key figure 'NNA growth', which shows the NNA in

relation of the previous AUM balance (annualized).

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Advantages of Mutual Fund Mutual funds offer several advantages to investors

Affordable

Almost everyone can buy mutual funds. Mutual Funds generally provide a

opportunity to invest with less funds as compared to other avenues in the capital

market. Even the ancillary fee which one has to pay in the form of brokerages,

custodian etc is lower than other options and is directly linked to the performance of

the scheme.

Professional Management

For an average investor, it may be quite difficult to decide what to buy, when to buy,

how much to buy and when to sell. Mutual Funds have a skilled professionals who

have years of experience to manages your money. The fund manager takes these

decisions after doing adequate research on the economy, industries and companies,

before buying stocks or bonds. They use intensive research techniques to analyze each

investment option for the potential of returns .

Diversification

Investments are less risky as it is spread across a wide cross-section of industries and

sectors. Diversification reduces the risk because all stocks generally don’t move in the

same direction at the same time. A mutual fund is able to diversify more easily than an

average investor across several companies.

Liquidity

You can afford to withdraw your money from a mutual fund on immediate basis when

compared with other forms of savings like the public provident fund or National

Savings Scheme. You can withdraw or redeem money at the Net Asset Value related

prices in the open-end schemes. In closed-end schemes, the units can be transacted at

the prevailing market price on a stock exchange.

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Tax Benefits

Mutual funds have historically been more efficient from the tax point of view. A debt

fund pays a dividend distribution tax of 12.5 per cent before distributing dividend to

an individual investor or an HUF, whereas it is 20 per cent for all other entities. There

is no dividend tax on dividends from an equity fund for individual investor.

Well Regulated

The Mutual Fund industry is very well regulated. All investments have to be

accounted for. SEBI acts as a true watchdog in this case and can impose penalties on

the AMCs at fault. The regulations are also designed to protect the investors’ interests

are also implemented effectively.

Drawbacks of mutual funds

Mutual funds have their drawbacks. They are as follows:

No Guarantee of returns

No investment is risk free. If the entire stock market declines in value, the value of

mutual fund shares will go down as well, no matter how balanced the portfolio.

Investors encounter fewer risks when they invest in mutual funds than when they buy

and sell stocks on their own. However, anyone who invests through a mutual fund

runs the risk of losing money.

Fees and commissions

All funds charge administrative fees to cover their day-to-day expenses. Some funds

also charge sales commissions or "loads" to compensate brokers, financial

consultants, or financial planners. Even if you don't use a broker or other financial

adviser, you will pay a sales commission if you buy shares in a Load Fund.

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Taxes

During a typical year, most actively managed mutual funds sell anywhere from 20 to

70 percent of the securities in their portfolios. If your fund makes a profit on its sales,

you will pay taxes on the income you receive, even if you reinvest the money you

made.

Management risk

When you invest in a mutual fund, you depend on the fund's manager to make the

right decisions regarding the fund's portfolio. If the manager does not perform as well

as you had hoped, you might not make as much money on your investment as you

expected. Of course, if you invest in Index Funds, you forego management risk,

because these funds do not employ managers.

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DEBT MUTUAL FUNDS

A Debt Mutual fund is a type of mutual fund that is designed especially for the low

risk investor whose main aim is capital preservation coupled with decent returns on

investment. These are for investors who prefer funds with lesser volatility, who want a

regular income and are willing to late little or very limited risk.

DEBT FUNDS:

All mutual funds have some amount of risk, but debt mutual funds are less risky than

equity oriented mutual funds. Debt funds usually invest in fixed income instruments

that may also offer capital appreciation. Debt funds can give you

1. Capital Appreciation and

2. Regular Income

Capital Appreciation:

Debt funds buy either listed or unlisted debt instruments at a certain price and then

sell them. The difference between the cost and sale price accounts for the appreciation

or depreciation in the funds value. A debt instruments market price depends on the

interest rates of its underlying assets and also any up or downward movement in the

credit ratings of its holdings.

Market prices of debt securities swing with movements in the prevailing interest rates.

Let us say our debt fund owns a security that yields a 10% interest. If the market

interest rates fall, new instruments that hit the market would reflect the changed

interest rates and offer lower returns. This would result in an increase in our funds

price as the higher yield would raise our instruments value. As a result the NAV of our

fund would increase which provides us with the capital appreciation

Regular Income:

Similar to the interest that banks offer us on our deposits, debt funds also earn a

regular interest from the fixed income securities they are invested in. This income gets

added to the debt fund on a regular basis. This income would be shared with us,

thereby providing us with regular income

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Recommendation:

Debt funds are specifically designed for the investor who is not ready to take risks that come with equity mutual funds but at the same time wants a better return than bank deposits. You can have limited exposure to these funds to add a balance to your portfolio. An ideal investment portfolio would have around 10-15% exposure to these instruments.

Snap shot of the funds under study

Reliance Short Term Fund Reliance Income Fund

Fund Manager Mr. Amitabh Mohanty Mr. Amit Tripathi

Category Debt : Short term income plan Debt : Medium term plan

Investment Objective The primary investment

objective of the scheme is to

generate stable returns for

investors with a short term

investment horizon by investing

in fixed income securitites of a

short-term

maturity.

The primary investment

objective of the scheme is to

generate optimal returns

consistent with moderate level of

risk. This income may be

complemented by capital

appreciation of the portfolio.

Accordingly, investments shall

predominantly be made in Debt

& Money Market Instruments.

Nature of the scheme An open ended Debt Short term

scheme

An open ended Debt scheme

Date of Inception 23/12/2002 01/01/1998

Benchmark CRISIL Liquid Fund Index CRISIL Composite Bond Fund

Index

Minimum investment

amount

50,000 5,000

Entry load Nil Nil

Exit load Nil <_5 lakh - 0.50% within 0-6

months; >5 lakh - 0.10% within

0-7 days

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BIRLA SUN LIFE INCOME FUND

OBJECTIVE: An open-ended income scheme with the objective to generate income

and capital appreciation by investing 100% of the corpus in a diversified portfolio of

debt and money market securities.

LAUNCH: March 3,1997

BIRLA SUN LIFE ULTRA SHORT TERM FUND

OBJECTIVE: An open-ended short term income scheme with the objective to

generate income and capital appreciation by investing 100% of the corpus in a

diversified portfolio of debt and money market securities with relatively low level of

interest rate risk.

LAUNCH : April 19, 2002

BIRLA SUN LIFE MEDIUM TERM PLAN

OBJECTIVE: The primary investment objective of the scheme is to generate regular

income through investments in debt & money market instruments in order to make

regular dividend payments to unitholders& secondary objective is growth of capital.

LAUNCH : March 25, 2009

ICICI Prudential Short Term Fund ICICI Prudential Short Term Fund is an open ended Debt scheme, with majority of

asset allocation to the debt instruments like T-bills, commercial papers etc. These type

of funds are less risky compared to that of the equity schemes and the returns

generated are also very less. Risk averse investors generally go for this type of

schemes. The ICICI Prudential Short Term Fund is operated in the same way as the

benchmark index CRISIL Short Term Bond Fund Index, ie the sector allocation will

be similar to that of the benchmark and the mutual fund scheme has the benefit of

picking a particular stock in a given sector that will generate good returns to the

investor compared to that of the benchmark.

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RELIANCE SHORT TERM FUND

Reliance short term fund is an open ended Debt scheme, with majority of asset

allocation to the debt instruments like T-bills, commercial papers etc. These type of

funds are less risky compared to that of the equity schemes and the returns generated

are also very less. Risk averse investors generally go for this type of schemes.

Reliance Short Term Fund is operated in the same way as the benchmark index

CRISIL Liquid Bond Fund Index, ie the sector allocation will be similar to that of the

benchmark and the mutual fund scheme has the benefit of picking a particular stock in

a given sector that will generate good returns to the investor compared to that of the

benchmark

BIRLA SUN LIFE SHORT TERM FUND

Birla Sun Life Short Term Fund is an open ended Debt scheme, with majority of asset



are also very less. Risk averse investors generally go for this type of schemes. The

Birla Sun Life Short Term Fund is operated in

the same way as the benchmark index CRISIL Short Term Bond Fund Index, ie the

sector allocation will be similar to that of the benchmark and the mutual fund scheme

has the benefit of picking a particular stock in a given sector that will generate good

returns to the investor compared to that of the benchmark.

RELIANCE INCOME FUND

Reliance Income Fund is an open ended Debt scheme, with majority of asset



are also very less. Risk averse investors generally go for this type of schemes. The

Reliance Income Fund is operated in the same way as the benchmark index CRISIL

composite Bond Fund Index, ie the sector allocation will be similar to that of the



benchmark.

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Birla Sun Life Fund is an open ended Debt scheme, with majority of asset allocation

to the debt instruments like T-bills, commercial papers etc. These type of funds are

less risky compared to that of the equity schemes and the returns generated are also

very less. Risk averse investors generally go for this type of schemes. The Birla Sun

Life Income Fund is operated in the same way as the benchmark index S&P CNX

Nifty, ie the sector allocation will be similar to that of the benchmark and the mutual

fund scheme has the benefit of picking a particular stock in a given sector that will

generate good returns to the investor compared to that of the benchmark.

ICICI PRUDENTIAL INCOME PLAN

ICICI plan is an open ended Debt scheme; the portfolio has the medium term

maturity, with majority of asset allocation to the debt instruments like T-bills,

commercial papers etc. These type of funds are less risky compared to that of the

equity schemes and the returns generated are also very less. These can generate

comparatively more returns than the short term fund because they have a higher level

of risk. Risk averse investors generally go for this type of schemes. The ICICI

Prudential income plan is operated in the same way as the benchmark index CRISIL

Composite Bond Fund Index, ie the sector allocation will be similar to that of the



benchmark.

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CHAPTER-III

INDUSTRY ANALYSIS

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INDUSTRY ANALYSIS

History of mutual funds

The origin of mutual fund industry in India is with the introduction of the concept of

mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated

from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvements,

both quality wise as well as quantity wise. Before, the monopoly of the market had

seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The

private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and

till April 2004, it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it

is less than the deposits of SBI alone, constitute less than 11% of the total deposits

held by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in

the country. Large sections of Indian investors are yet to be educated with the concept.

Hence, it is the prime responsibility of all mutual fund companies, to market the

product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the

development of the sector. Each phase is briefly described as under.

Source: Understanding Mutual funds- Sunita Abraham, Uma Shashikant

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set

up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from

the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched by

UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets

under management.

30

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank

Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank

Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct

92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under

management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual

fund industry, giving the Indian investors a wider choice of fund families. Also, 1993

was the year in which the first Mutual Fund Regulations came into being, under

which all mutual funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private sector

mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual

funds setting up funds in India and also the industry has witnessed several mergers

and acquisitions. As at the end of January 2003, there were 33 mutual funds with total

assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets

under management was way ahead of other mutual funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities.

One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835

crores (as on January 2003). The Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules framed by Government of

India and does not come under the purview of the Mutual Fund Regulations.

31

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores

of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI

Mutual Fund Regulations, and with recent mergers taking place among different

private sector funds, the mutual fund industry has entered its current phase of

consolidation and growth. As at the end of September, 2004, there were 29 funds,

which manage assets of Rs.153108 crores under 421 schemes.

32

CHAPTER-IV

COMPANY ANALYSIS

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It all started in the year 2002 with the US lowering its interest rates fearing the

slowdown of their economy. To be in line with the world, India also lowered its

interest rates, thereby initiating a new consumption cycle. This had a cascading effect

on all sectors: commodities, agriculture, infrastructure, banking, auto and auto

ancillary, IT and IT enabled services.

The stupendous growth trajectory achieved in the past 4 years was due to sound

government fiscal policies which assisted in giving a fillip to the Indian economy.

Indian economy has been growing at 7-8% over the last few years and is not

only expected to recover soon but also maintain a high trajectory for a long time to

come.

Financial sector leading from the front with growth rates much higher at 20%.

Demat accounts growing @ 20% CAGR over the last few years.

But, equity penetration is still very low: 116cr population*, 17cr PAN* card

holders, only 1.47cr Demat accounts*.

Historically, Equity (@ 15% CAGR) as an asset class outperforms all others.

“Historically, the Sensex has been growing at a compounded rate of 17% per annum.”

37

Fiscal stimulus and RBIs Monetary Policy will put economy on strong growth

path.

Interest rates on a decline, equities expected to gain from this.

Indian economy expected to bounce back by year end.

Corporate earnings to improve in the second half of the current financial year.

CHAPTER-V

DATA ANALYSIS

38

SCHEMES UNDER STUDY

1 Debt Short term plan ICICI Short term fund

2 Debt Short term plan Reliance short term plan

3 Debt Short term plan Birla Sun Life Short term fund

4 Debt Medium term

plan

ICICI Income plan

5 Debt Medium term

plan

Reliance Income Fund

6 Debt Medium term

plan

Birla Sun Life Income fund

39

ICICI PRUDENTIAL SHORT TERM FUND

month NAV Avg AUM

(crores)

average

maturity

(years)

Yield to

maturity(%)

Returns %

Jan-11 15.7115 441.37 1.49 9.27 0.58

Feb-11 15.7466 414.73 1.02 10.04 0.23

Mar-11 15.8422 283.51 1.01 10.44 0.61

Aprl-11 15.9559 241.72 1 10.47 0.69

May-11 16.1366 238.11 2.68 10.99 1.05

Jun-11 16.1474 168.92 4.01 11.79 0.16

July-11 16.5466 166.62 4.85 9.74 2.47

Aug-11 17.7979 515.38 4.87 8.16 7.2

Sep-11 17.6593 902.96 3.52 7.11 -0.75

Oct-11 17.8083 1,114.70 2.2 6.96 0.84

Nov-11 17.8947 1,116.79 2.96 8.39 0.49

Dec-11 17.62 1,238.45 2.2 7.11 2.16

40

41

42

ANALYSIS:

The above are the graphs showing the tendency of the NAV, AUM, % Returns from

January 2011, thick line shows the actual variation over the period and the thin line

shows the trend of the variation. NAV is the net asset value of the portfolio of stocks.

At the beginning of the year 2011 the NAV of the fund is 15.71 rupees, till the end of

the year December 2011 NAV is falling and raising. From the starting of the year 2011

the NAV of the fund is stabilized in the month of june 2011 the NAV of the fund is

Rs.16.14. At the beginning of the year 2011 the AUM of the fund is 441.37crores, till

the end of the year December 2011 AUM is irregularly decreasing and increasing.

From the starting of the year 2011 the AUM of the fund started to rise by the end of

dec 2011 the AUM of the fund is reached to 1238.45 crores. The returns generated by

the fund have shown very irregular tendency. But by the trend line of the graph says

that the returns generated by the fund are increasing and showing the tendency to rise.

Currently the returns generated by the fund in the month of December 2011 is 2.16%.

The performance of these schemes is influenced mainly by influenced by the ratings

of the bonds that are choosed in the portfolio.

43

RELIANCE SHORT TERM FUND

Month NAV Avg AUM (crores) average

maturity

Returns %

Jan-11 14.4718 602.7 2.18Years 0.69

Feb-11 14.5734 639.56 1.77 Years 0.09

Mar-11 14.5825 496.53 1.61 Years 0.4

Aprl-11 14.6402 385.69 1.43 Years 0.72

May-11 14.7515 370.36 1.59 Years 0.7

Jun-11 14.8664 331.19 2.16 Years 0.21

July-11 14.8847 232.33 2.18 Years 0.92

Aug-11 15.021 178.28 2.58 Years 4.98

Sep-11 15.7941 271.93 2.34 Years 0.46

Oct-11 15.8592 522.45 2.54 Years 1.33

Nov-11 16.0699 690.83 2.43 Years 0.68

Dec-11 16.1799 1191.96 2.31 Years 2.51

44

45

46

ANALYSIS:






the NAV of the fund is stabilized in the month of june 2011 the NAV of the fund is Rs.

14.86. At the beginning of the year 2011 the AUM of the fund is 602.7 crores, till the

end of the year December 2011 AUM is irregularly decreasing and incresaing. From

the starting of the year 2011 the AUM of the fund started to raise by the end of

December 2011 the AUM of the fund is reached to 1191.96 crores. The returns

generated by the fund have shown very irregular tendency. But by the trend line of the

graph says that the returns generated by the fund are increasing and showing the

tendency to raise. Currently the returns generated by the fund in the month of

December 2011 is 2.51%.

47

BIRLA SUN LIFE SHORT TERM FUND

Month NAV Avg AUM

(crores)

average

maturity(years)

% Returns

Jan-11 14.3954 1027.54 2.26 0.77

Feb-11 14.4995 969.65 4.07 0.44

Mar-11 14.5662 972.34 3.28 0.74

Apr-11 14.6734 809.43 3.93 0.61

May-11 14.7669 602.34 0.86 0.69

Jun-11 14.873 562.64 0.82 0.55

Jul-11 14.9511 191.11 0.67 0.67

Aug-11 15.0546 258.43 0.3 0.72

Sep-11 15.1658 187.55 0.22 0.76

Oct-11 15.2925 309.51 0.38 0.84

Nov-11 15.4247 1581.81 0.23 0.71

Dec-11 15.5414 4601.3 0.19 0.68

48

49

50

ANALYSIS:




At the beginning of the year 2011 the NAV of the fund is 14.39 rupees, the NAV of

this fund is continuously increasing, in the month of Sepetember 2011 the NAV of the

fund is Rs. 15.16. At the beginning of the year 2011 the AUM of the fund is 1027.54

crores, till the end of the year December 2011 AUM is irregularly decreasing and

increasing. From the starting of the year 2011 the AUM of the fund started to raise by

the end of December 2011 the AUM of the fund is reached to 4601.3 crores. The

returns generated by the fund have shown very irregular tendency. But by the trend

line of the graph says that the returns generated by the fund are increasing and

showing the tendency to raise. Currently the returns generated by the fund in the

month of December 2011 is 0.68%. the performance of the debt schemes is influenced

by the interest rate variations.

51

RELIANCE INCOME FUND

Month NAV Avg AUM

(crores)

average

maturity

yield to maturity % Returns

Jan-11 25.33 80.27 13.62 7.77 1.93

Feb-11 25.93 124.68 16.09 8.29 -0.39

Mar-11 25.85 182.92 12.98 7.56 -1.32

Apr-11 25.51 199.12 9.06 8.75 0.16

May-11 25.55 179.32 7.16 7.92 0.16

Jun-11 25.596 163.31 3.62 8.14% -0.79

Jul-11 25.3888 153.29 1.53 9.39% -0.24

Aug-11 25.3348 133.13 3.10 9.51% 1.24

Sep-11 25.6685 113.46 7.69 9.88% 0.02

Oct-11 25.7618 102.4 10.23 10.21% 1.17

Nov-11 26.1378 119.63 9.79 10.23% 3.26

Dec-11 26.9895 256.72 11.21 8.50% 13.38

52

53

54

ANALYSIS:






the NAV of the fund is stabilized in the month of Sepetember 2011 the NAV of the

fund is Rs. 25.66. At the beginning of the year 2011 the AUM of the fund is 80.27

crores, till the end of the year December 2011 AUM is irregularly decreasing and

increasing. From the starting of the year 2011 the AUM of the fund started to raise by

the end of December 2011 the AUM of the fund is reached to 256.72 crores. The

returns generated by the fund have shown very irregular tendency. But by the trend

line of the graph says that the returns generated by the fund are increasing and

showing the tendency to rise. Currently the returns generated by the fund in the month

of December 2011 is 13.38%.

55


Month NAV Avg AUM

(crores)

average

maturity

(years)

% Returns

Jan-11 28.9715 105.88 14.96 2.75

Feb-11 29.9123 194.96 14.92 -0.47

Mar-11 29.7854 285.85 14.94 -1.24

Apr-11 29.4134 289.49 6.88 0.75

May-11 29.6445 277.89 3.2 0.1

Jun-11 29.6821 292.45 1.94 -0.35

Jul-11 29.5663 250.13 0.86 0.36

Aug-11 29.6788 218.18 1.5 0.79

Sep-11 30.0018 184.48 2.29 0.01

Oct-11 30.0508 150.79 3.84 0.52

Nov-11 30.2195 136.37 8.28 3.08

Dec-11 31.1615 125.79 12.98 14.33

56

57

58

ANALYSIS:





the month Sepetember 2011 NAV is falling and raising. From the starting of the

October month 2011 the NAV of the fund is stabilized where NAV of the fund is Rs.

30.65. At the beginning of the year 2011 the AUM of the fund is 105.88 crores, till the

end of the year December 2011 AUM is irregularly decreasing and incresaing. From

the starting of the year 2011 the AUM of the fund started to raise by the end of

December 2011 the AUM of the fund is reached to 125.79 crores. The returns

generated by the fund have shown very irregular tendency. But by the trend line of the

graph says that the returns generated by the fund are increasing and showing the

tendency to rise. Currently the returns generated by the fund in the month of

December 2011 is 14.33%

59

ICICI PRUDENTIAL INCOME PLAN

Month NAV AVG AUM avg maturity yield to

maturity

% Returns

Jan-11 24.14 579.49 16.23 8.25% 1.99

Feb-11 23.99 704.61 18.13 8.27% -0.7

Mar-11 23.57 641.87 12.38 8.93% -1.63

Apr-11 23.53 460.36 5.57 8.83% -1.17

May-11 23.68 418.82 4.08 9.18% 0.64

Jun-11 23.42 316.9 2.1 9.37% -1.06

Jul-11 23.46 283.25 0.6 9.32% 0.17

Aug-11 23.87 249.59 4.07 9.94% 1.69

Sep-11 24.45 213.18 10.65 11.52% 2.1

Oct-11 24.75 205.5 9.54 10.76% 1.48

Nov-11 25.67 507.6 11.67 9.03% 3.72

Dec-11 29.55 2547.98 14.06 7.55% 14.54

60

61

62

ANALYSIS:


January 2011,At the beginning of the year 2011 the NAV of the fund is 24.14 rupees,

till the end of the year December 2011 NAV is falling and raising. From the starting of

the year 2011 the NAV of the fund is stabilized in the month of Setember 2011 the

NAV of the fund is Rs. 24.45. At the beginning of the year 2011 the AUM of the fund

is 579.49 crores, till the end of the year December 2011 AUM is irregularly

decreasing and increasing. From the starting of the year 2011 the AUM of the fund

started to rise by the end of march 2011 the AUM of the fund is reached to 2547.98

crore.Currently the fund generated by the fund by the end of December is 14.54% .

63

COMPARISON OF BIRLA SUN LIFE MUTUAL FUND SCHEMES

WITH RELIANCE MUTUAL FUND AND ICICI PRUDENTIAL

MUTUAL FUND

Comparison of Schemes in the Debt Short Term Plans

Debt schemes are those invest in the Debt instruments issued by different companies,

these instruments have relatively smaller tenure compared to that of the equity

schemes. The risk and returns with this schemes is very low, because there is high

credit quality. The credit quality of the particular debt instrument issued by the

company is determined by the credit rating agencies. The bonds having higher credit

rating give only smaller returns. The chart below shows the NAV of three Debt short

term plans of three different companies.

64

Chart showing the NAV of three different sch

65

ANALYSIS:

The above graph shows the variation of the NAV of the three schemes under study.

They have shown the appreciation in the NAV. The NAV of ICICI Prudential Short

Term Fund had increased. In the beginning of the year 2011 the NAV of the fund is

15.71 rupees it had appreciated to 17.62 rupees. NAV of Reliance Short Term Fund

had changed from 14.47 to 16.17 rupees and the NAV of the Birla Sun life Short Term

Fund is appreciated from 14.39 to 15.54 rupees. Compared to all other funds the

appreciation of the Birla Sun Life Short Term fund is less. The NAV of these funds is

widely influenced by the ratings of the bonds choosen in the portfolio. If we need high

credit quality the returns generated are less.

66

COMPARISON OF THE DEBT MEDIUM TERM PLANS

Medium term plans are the schemes that are schemes that are with the medium tenure.

The following chart shows the comparative analysis of the three Debt medium term

plans.

Chart showing the NAV variation of the three income funds of different

companies

67

ANALYSIS:

The above sheet shows the performance of the three schemes, Relaince Income Fund,

Birla Sun Life Income Fund, and ICICI Prudential Income Plan. Birla sun Life

Income fund had higher NAV in the beginning and the end of the period of study. All

these funds same as the Debt short term fund shown the increase in the NAV. The

performance of these schemes is dependent on inerest rate variations. In the

beginning of the year Birla Sun Life Income fund had the NAV of 29.97 and by the

end of December 2011 31.16. Returns generated by each scheme during whole period

is also shown in the second chart.

68

CHAPTER-VI

FINDINGS, SUGGESTIONS

&

CONCLUSION

69

FINDINGS:

SHORT TERM SCHEMES:

1. Performance ofBirla Sun Life Mutual fund in 2008 was 1% .

2. RELIANCEwas 5% .Reliance was high when compared to Birla Sun Life

Mutual Fund.

3. ICICIwas 7% it is higher when compared to both schemes.

4. Performance of Birla Sun Life Mutual Funds was 0.5% in April 2009.

5. RELIANCE was 2.5% its performance was higher than Birla Sun Life

Mutual Fund.

6. ICICI was2.2% it was less than Reliance but higher than Birla Sun Life

Mutual Fund.

MEDIUM TERM SCHEMES:

1. In December 2008 performance of Birla Sun Life Mutual Fund very high

12%.

2. RELIANCE is 1% more than Birla Sun Life Mutual Fund. i.e 13%

3. ICICI performanceisvery high in December 2008 as compared to both

schemes.

4. In January 2009 all the three schemes were below the margin i.e negative .

5. As compared to both the schemes Birla Sun life Mutual Fund was in

better position .

6. In April 2009 again it has been raised to 0.4% from -0.3%

70

SUGGESTIONS:

1. Birla sun Life short term fund is an open ended Debt scheme, with majority of

asset allocation to the debt instruments like T-bills, commercial papers etc. This types

of funds are less risky compared to that of the equity schemes .

2. Birla Sun Lifemedium term fund had shown increase in the nav because the

portfolio of the scheme is diversified by increasing the exposure to Debt Market.

3. In Debt scheme risk &returns is very low, because there is higher quality.

4. The credit quality of the particular debt instrument issued by the company is

determined by the credit rating agency.

5. Medium term plans are the schemes that are with the medium tenure.

6. the mutual fund scheme has the benefit of picking a particular stock in a given

sector that will generate good returns to the investors compared to that of bench mark.

71

CONCLUSION

1. They are Equity Diversified, Equity sector schemes, ELSS (Equity Linked Saving

Schemes) schemes, Debt short term and Debt Medium term plans. In Equity

Diversified category the fund that hurt a lot is Reliance growth fund, its NAV has

dropped more than 50% during the period of study.

2. In Equity Diversified schemes as against to the herd, Birla Sun Life Frontline

Equity Fund, had shown the increase in the NAV, the fund manager has managed to

do this by allocating more percentage of the assets to debt, as the Debt market has

shown better performance the funds NAV has increased. This scheme has been given

Seven Star Rating by ICRA.

3. The scheme has shown negative returns for many months, currently the

Performance of the scheme is slowly improving because of change in prevailing

market conditions. The other two categories that are studied are Debt Short term plan

and Debt medium term plan.

4. The performance of these schemes is more or less similar, these debt schemes have

shown the increase in the NAV during the period of recession. This is because these

funds are not at all related to the Equity shares, that are affected by the financial crisis.

The debt schemes will work on the Bonds, T-bills, Commercial Papers, and CDs

issued by the government and private.

72

CHAPTER-VII

BIBLIOGRAPHY

73

BIBLIOGRAPHY:

TEXT BOOKS

Sunita Abraham and Uma Shashikanth, September 2010, Understanding Mutual

Funds, Center for investment Education and Learning Pvt Ltd.

Gordon AndNatarajan, 1999 Financial Markets and Services, Himalaya

Publishing House, “Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai -400-004.

Pattabhi Ram And S D Batla, Management Accounting and Financial Analysis

NEWS PAPERS:

Economic times

Business standard

Business India magazine

WEBSITES:

www.birlasunlife.com

www.icicipruamu.com

www.reliancemutual.com

www.mutualfundsindia.com

www.amfiindia.com

www.wikipedia.com

74

http://www.wikipedia.com/

http://www.amfiindia.com/

http://www.mutualfundsindia.com/

http://www.reliancemutual.com/

http://www.icicipruamu.com/

http://www.birlasunlife.com/